Current legislation regulating the function of
trustees in the administration of trust property
U.M. TARWA
24548154
LLB
Mini-dissertation submitted in fulfilment of the requirements for the
degree
Magister Legum
in Estate Law at the Potchefstroom Campus of
the North-West University
Supervisor: Mrs A Vorster
November 2015
Abstract:
Key words: estate planning, trust administration, sham trust, alter ego trust/trust abuse.
The main focus of this study is to assess how effective the current legislation is in regulating the trustees in the administration of trust property in South Africa in order to prevent maladministration and abuse of trusts. The administration of a trust revolves mainly around the trustees and the particular relationship between the trustees and the beneficiaries. The benefits of the trust can only be legitimately achieved if the trust is administrated properly. The Trust Property Control Act of 57 of 1988 was designed to regulate the administration of trusts by establishing firmer control and supervision over trustees in order to protect the trust beneficiaries. Unfortunately the Act failed to deal with many important aspects of trust administration and as a result the majority of problems associated with the administration of trusts still have to be addressed outside the ambit of the act, usually by applying common law principles. The Act is clearly ineffective in regulating the administration of trusts in that it is outdated (27 years old), very brief (only 27 sections) and therefore lacks comprehensive guidelines on how trustees should manage trust property. This has led to the extensive abuse of trusts by both the founder and trustees. This abuse however has been the subject of a number of court decisions since 1990. The courts have done an excellent job thus far but to ensure legal certainty the submission is that the current legislation should be amended to incorporate all aspects of trust law (common law, the Act and case law) into one single comprehensive legislation.
TABLE OF CONTENTS
Abstract……… Acknowledgements ………..………..….….… List of abbreviations ……….………...… PAGE ii vii viii 1 2 3Background and nature of the study ……….………..….…
1.1 Introduction ……….…….
1.2 Current Situation: Regulation of trusts ……….……
1.3 Objectives of the study ………..………...
1.4 Method and structure .………...
1.5 Conclusion ……….…...
The historical development of the trust in South African law ……….
2.1 Introduction ………..
2.2 The development of trusts in England ……… 2.3 The development of trust law in South Africa ……….….. 2.3.1 Development of the trust by South African courts ……….. 2.3.2 Development by legislature ……….. 2.4 The nature and meaning of a trust ……….……. 2.4.1 The concept of a trust ……….... 2.4.2 The legal nature of trusts ……….………..……….… 2.4.3 Different types of trusts ………..……….……. 2.4.4 Parties to a trust ……….…… 2.4.4.1 The founder ………..…. 2.4.4.2 The trustees ……….…….. 2.4.4.3 The beneficiaries……….…….
2.5 Conclusion ……….………
The role of the current legislation in regulating the administration of trusts
3.1 Introduction ………..
3.2 The fiduciary nature and office of trusteeship ………...… 3.3 Trustees’ powers and duties in terms of the trust deed ………….….
1 1 4 7 7 8 10 10 10 12 13 15 16 18 18 19 19 19 20 20 20 22 22 24 25
3.4 Trustees’ duties, responsibilities and obligations in terms of the common law ………..……….. 3.5 Trustees’ duties, responsibilities and obligations in terms of the Act 3.6 Regulation and control of trustees when administering a trust …... 3.6.1 The role of the Master of the High Court ………..…… 3.6.2 Regulation of trustees by the Master of the High Court ……..……… 3.6.3 The powers and role of the High Court in regulating trust
administration ….………...
3.7 Analysis of the Act ……….
3.7.1 Deficiencies in the Act ……….... 3.7.1.1 Disclosure requirements ……….….
3.7.1.2 Centralised system ……….…
3.7.1.3 Involvement ……….….
3.7.1.4 Acting jointly ……….….
3.7.1.5 Validity of the trust deed ……….…
3.7.1.6 Guidance ……….….
3.7.1.7 Beneficiaries’ rights ………...
3.7.1.8 Accountability ……….…..
3.7.1.9 Powers of trustees ……….….
3.7.1.10 Separation of property ……….… 3.7.1.11 Variations of a trust deed ……….….. 3.7.1.12 Trustees ……….….. 3.7.1.13 Personal liability ……….….. 3.7.1.14 Trust audit ……….…. 3.7.1.15 Resignation ……….… 3.7.1.16 Preformation agreements ……….…. 3.7.1.17 The validity of an act performed by an unauthorised
trustee ……….. 3.7.1.18 Number of trustees ……….….. 3.7.1.19 Limitations ……….…………. 3.8 Conclusion ……….………… 27 28 30 31 32 35 36 37 37 38 39 39 41 42 42 42 44 44 45 46 46 46 47 47 47 48 49 49
4 Current development: Case law ………...
4.1 Introduction ………..
4.2 Land and Agriculture Bank of South Africa v Parker ……….…. 4.2.1 Facts ……….…….….. 4.2.2 Legal question ……….…… 4.2.3 Judgement ……….…… 4.3 Badenhorst v Badenhorst …….……….…………..… 4.3.1 Facts ……….…… 4.3.2 Legal question ……….…… 4.3.3 Judgement ……….… 4.4 Jordaan v Jordaan ……….…………... 4.4.1 Facts ……….…… 4.4.2 Legal question ……….…… 4.4.3 Judgement ……….……
4.5 Van Zyl v Kaye ……….……….…….
4.5.1 Facts ……….…… 4.5.2 Legal question ……….…… 4.5.3 Judgement ……….… 4.6 Thorpe v Trittenwein ………... 4.6.1 Facts ……….… 4.6.2 Legal question ……….…… 4.6.3 Judgement ………. 4.7 Potgieter v Potgieter ………. 4.7.1 Facts ... 4.7.2 Legal question ... 4.7.3 Judgement on appeal ... 4.8 WT v KT ……..……….…. 4.8.1 Facts ………..….. 4.8.2 Legal question ………. 4.8.3 Judgement ………. 4.9 Conclusion ………. 51 51 51 51 52 52 56 56 57 57 59 59 59 60 60 60 60 60 62 62 62 63 65 65 65 65 66 66 67 67 68
5 Conclusions and Recommendations ………..… 5.1 Summary of findings ……….….. 5.2 Recommendations ……….... 5.3 Conclusion ……….…… 70 70 71 73 BIBLIOGRAPHY ……….. 75
ACKNOWLEDGEMENTS
I wish to express my sincere gratitude to the many people who have provided assistance for this study. I would like to thank the following people in particular: 1. My husband, Clever Tarwa, for his unwavering support throughout my studies. 2. My children, Lois Tarwa, Tapiwa Tarwa and Susan Tarwa, for their
understanding and patience.
3. My late mother, Lois Fundira, for making me realise the importance of education. I know she would have been very proud of me.
4. My supervisor, Mrs Anje Vorster, for her perseverance, encouragement and for believing in me.
5. Amelia Redelinghuys, who came for a holiday and ended up typing and formatting my study.
LIST OF ABBREVIATIONS
BBBEE FICA GAA JEPL MPF QLR SALJ SALC SARS SCA STELL LRBroad-Based Black Economic Empowerment Financial Intelligence Centre Act
Global Accounting Alliance Journal of Estate Planning Law Moneyweb’s Personal Finance
The Quarterly Law Review for People in Business South African Law Journal
South African Law Commission South African Revenue Services Supreme Court of Appeal
1 Background and nature of the study 1.1 Introduction
Death eventually knocks on everyone’s door and this necessitates proper estate planning to ensure that when the time comes, one has made the necessary arrangements for loved ones to be taken care of.1 Although there are many different
tools that can be used in estate planning, trusts (especially family trusts), have been one of the most popular tools for quite some time now. The inter vivos trust2 has in
many ways become the hallmark of most modern estate plans, despite the adverse tax rates, attempts at tax regulation mostly by the South African Revenue Services,3
and special scrutiny by the courts.4 The flexibility of trusts contributes greatly to their
popularity,5 as trusts, unlike for example companies and close corporations, are not
subject to rigorous and extensive legislature regulations. In fact, it has been said that “ the great virtue of trusts is their flexibility and relative lack of formality in creation and operation”,6 thus allowing the founder to draft the trust deed as he deems fit.7
A well-considered, carefully-constructed and properly administered inter vivos trust structure is very effective in achieving asset protection from claims arising from divorce and creditors. As far as estate planning is concerned, trusts provide an effective mechanism to minimise costs on death such as estate duty, capital gains tax and executor fees, as the estate planner is able to freeze that value of growth assets.8 Contrary to popular belief, trusts are actually tax-efficient, which is found in
the application of the conduit-principle.9 Furthermore, trusts provide protection to
minor and incapacitated beneficiaries who cannot manage their own financial affairs and cause continuity of assets and preservation of wealth from a succession point of
1 Turnstone Group 2011 http://www.turnstone-group.com.
2 For the purposes of this study the researcher only discusses the inter vivos trust. The
testamen-tary trust does not form part of this study.
3 Hereafter SARS.
4 Davis et al Estate Planning 14(3).
5 Cameron et al South African Law of Trusts 19. 6 Thompson and Deetlefs 2011 Without Prejudice 8. 7 Du Toit South African Trust Law 9.
8 Pretorius 2011 Tax Talk 15; Jones 2006 MPF 11-13. 9 Pretorius 2011 Tax Talk 15.
view. Although there are many advantages in using trusts, there are also disadvantages such as the high costs of setting up and running the trust, the costs of paying professional persons to administer the trust to prepare annual financial statements and the income returns. These set up costs could be as high as R20 000,00 (twenty thousand Rand) and if assets are transferred into the trust then transfer duty needs to be paid. Another disadvantage is loss of control over ownership and administration of the assets in the trust as the assets belong to the trust and are managed by the trustees of the trust. Last but not least, while there are some tax benefits associated with trusts, the earnings from the assets in the trust are taxed at 41% and interest exemptions do not apply to trust and the inclusion rate for Capital Gains tax is far much higher than that for individuals. However, the real challenge with trusts lies in their administration as there are added administration requirements in terms of the trust law.10 However, as the philosophers
say: “The very thing that we have, is the very thing that we hate”.11 What is often
neglected or simply ignored is the proper administration of trusts. Trusts,
being more often than not so intricately linked with families and their wealth, are mostly seen to be an extension of the founder or the family and this is where the fundamental problem lies. A trust is distinct and separate from the founder and should be administered as such.
The setting up of a trust should be carefully considered and not just be done blindly without weighing up the benefits and the disadvantages. The benefits of a trust can only be legitimately achieved if the trust is administered properly. Moreover, if trusts are used for the right reasons, the advantages often far outweigh any perceived or actual disadvantages. Pretorius is of the opinion: “What you lose on the swings, you can gain on the roundabouts”.12 The real downside of trusts is that very often the
people who have them do not administer trusts correctly, mainly due to their lack of knowledge and expertise in trust matters. This lack of proper administration, is very
10 Jones 2006 MPF 11-13. Padoa 2013 https://www.consolidated.co.za. 11 Turnstone Group 2011 http://www.turnstone-group.com.
often simply due to the horses for courses effect and results in the loss of the very benefits of asset protection and estate planning that the founder of trusts sought to gain by establishing the trust structure in the first place.13
The administration of a trust revolves mainly around the trustees and the particular relationship between the trustees and the beneficiaries.14 Unlike companies and close
corporations, trusts are not separate legal persons and must act through their trustees who themselves must act at all times in the interests of their beneficiaries and, in terms of the trust deed, must create the trust.15
Trustees have fiduciary duties to the trust beneficiaries and are required to act accordingly. When dealing with trust administration, the first port of call it is submitted to is the Trust Property Control Act,16 which contains various provisions
regarding the administration of trusts. Given the complexities of administering a trust, it is important that the trustees have the necessary expertise to management it. Regrettably, in reality many trustees who administer these trusts do not understand the fundamental principles and mechanisms of trusts, the real reason for their creation and, most importantly, their role and responsibilities towards the beneficiaries, co-trustees and the founder. In essence, the creation of a trust structure is therefore only the beginning of the journey to reach the destination of asset protection. Effective estate planning trusts have to be managed properly. Therefore, thorough and consistent administration of a trust is crucial and, unfortunately, it is the Achilles heel of many structures and, as our courts have shown, can be their undoing.17
13 Pretorius 2011 Tax Talk 15. 14 Hirsh 2011 Business Day 13.
15 Thompson and Deetlefs 2011Without Prejudice 9.
16 Trust Property Control Act 57 of 1988 (hereafter the Act). 17 Pretorius 2011 Tax Talk 15.
The law relating to trusts is in many respects underdeveloped.18 As a result, trusts
have received much attention from our courts, the Master of the High Court, SARS and the Government19 in an attempt to resolve disputes and prevent abuse of trusts
while at the same time clarifying and developing trust law. The courts are increasingly becoming firm with trust administration, as they no longer view the trust form as an impenetrable suit of armour that the trust founders, trustees and trust beneficiaries can rely upon to conceal their dubious practices. The courts will no longer allow the misuse of the trust form and the ensuing usurpation of the powers of trusteeship,20 as witnessed in recent court cases.
1.2 Current situation: Regulation of trusts
The basis of the law of trusts is neither legislation nor a code, but the common law (Roman-Dutch Law) and decided case law.21 The one statute that does apply to
trusts, namely the Act, only regulates certain administrative aspects relating to trusts. This Act was introduced in June 1988 and enacted in March 1989 with the purpose of regulating the control of trust property and of protecting trust assets by ensuring that the administration of trusts is supervised by the Master of the High Court. The Act empowers the Master of the High Court to supervise the activities of a trust22 and imposes certain duties on trustees in their administration of trusts.23
18 Botha et al Estate Planning 296.
19 Musviba 2015 http://www.sataxguide.co.za. The Davis Tax Committee’s first interim Report on
Estate Duty (DTC Report) was released for public comment on 13 July 2015. In essence, the DTC Report proposes that, “a highly progressive tax that patches loopholes, helps provide equality of opportunity and reduces the concentration of wealth, must be implemented”. These recommendations in the DTC Report will not necessarily find their way into draft tax legislation. South Africa has well-established rules and case law dealing with the taxation of trusts. The South African Revenues Services recently introduced new tax returns for trusts that require far more detailed disclosures by tax payers in accordance with these principles. The DTC Report deals with, among other things, donations tax, estate duty and the taxation of trusts. This is not the first time that Government has been on a commission of taxation. First it was the Margo Commission’s report on tax structure in South Africa published in 1987 and then the Katz Commission in 1996, which made recommendations towards increasing the effectiveness of tax collection.
20 Hyland and Smith 2006 JEPL 1-22. 21 Geach and Yeats Trusts 4.
22 Sections 1 and 3 of the Act. 23 Geach and Yeats Trusts 6.
The Act is very brief and concise, consisting of twenty-seven sections. Only Sections 9, 10, 11, 12 and 17 regulate certain administrative aspects and the remainder provides for the duties and function of the Master of the High Court. The Companies Act24 by comparison deals comprehensively with the formation and registration of
companies, operation and management, accounting records, financial statements, the legal status of companies, the memorandum of incorporation, authorisation of shares, general liability of directors, duties and procedures for removal of directors, remedies and enforcement and winding up of solvent companies and the deregistration of companies and business rescue. It is much more detailed. The basis of company law in South Africa is therefore the Companies Act, which is then complemented by the decided case law,25 while the cornerstone of the law of trusts
is the common law. This creates a problem, as many issues with regard to trust matters, in particular the administrative trust activities are unclear and this causes considerable uncertainty.
As a result, the courts have to rely heavily on common law and case law when dealing with the various problems associated with trust administration, such as the requirements for a valid trust and the nature of the fiduciary office of trustees. The Act lacks detail and contains very few rules relating to the formation or administration of trusts. It also fails to provide clear specific guidelines to regulate the trustees in their role as administrators of the various types of trusts currently in use.26 The Act has been in operation for twenty-seven years and has had only one
amendment since its promulgation. It is therefore outdated, especially with regard to all the changes that have occurred as far as the taxation of trust is concerned and the development of newer types of trusts.27
Although the Act gives the Master of the High Court extensive supervisory powers over the office of trustees, these powers over trusts are less detailed than in the case
24 Companies Act 71 of 2008 (hereafter the Companies Act). 25 Geach and Yeats Trusts 6.
26 Geach and Yeats Trusts 4.
27 Such as Broad-Based Black Economic Empowerment (BBBEE) trusts, business trusts, special
of the administration of the estates of the deceased persons by executors.28 This
limited involvement of the Master in the administration of trusts has resulted in widespread lack of proper administration of trusts, leading to abuse of trusts by trustees who are largely left on their own to carry on unsupervised with the management of trusts. To compound the problem, the Master’s office lacks both financial and personnel resources to promptly and thoroughly conduct investigations on trust maladministration, and by the time the Master eventually completes the investigations, many beneficiaries will have suffered severe financial losses at the hands of the unscrupulous trustees.29 This leaves the trust beneficiaries with very
little protection, as the trust environment is highly unregulated.
Despite all the problems associated with the administration of trusts, their use in estate planning remains popular, although there is a desperate need to regulate the trustees more and to increase the scope of the supervisory role of the Master of the High Court to prevent maladministration of trusts.30 Many trustees do not understand
the fundamental mechanisms of a trust, the reason why trusts are created in the first place and more often than not, they do not even know how to manage trust assets and continue to manage them as their own assets with absolutely no regard of the very legal doctrines that govern and regulate them. Many trustees conduct their duties in a nonchalant manner thinking that they are not regulated at all, leading to reckless negligent or uninformed administration. Hence, the need to effectively regulate the trustees in line with re prevailing legislation in order to prevent maladministration and/or abuse of trusts by trustees who stand the risk of landing up in court.
Although the Act was intended to exert firmer control over the trustees, it failed to address the critical areas of trust administration and the level of regulation.31 An
amendment of the current legislation is required, as this will help clarify many uncertainties that currently exist in the Act, such as procedure in the amendment of
28 Cameron et al South African Law of Trusts 20. 29 Hyland and Smith 2006 JEPL 1-22.
30 Elliot 2006 Professional Accountant 26. Beachen 2013 ENSAfrica-Mondaq 1. 31 Elliot 2006 Professional Accountant 26.
trust deeds, consequences if the amendment of a trust deed is declared invalid, rights of trust beneficiaries, regulation of trust administration, the role of the Master of the High Court, South African Revenue Services (SARS) in regulating the trustees, authorisation of trustees, resignation of trustees, the requirement for validity and removal of trustees to mention a few. All these together with various other uncertainties are discussed in detail in Chapters 4 and 5. Although some recent case law such as the Potgieter case have succeeded in providing clarity on these uncertainties, a number of problematic issues still exist. Once again, it is important to realise that in order to obtain the benefits associated with using a trust, it is crucial that the trust is correctly set, complies with all the requirements of the Act and, most importantly, is administered properly by the trustees under close supervision of the Master of the High Court so that they perform their duties as trustees effectively.32
1.3 Objectives of the study
The main objective of this study is to examine the Act to assess if it is effective in regulating and controlling the trustees in the performance of their duties as trust administrators. Particular attention is paid to the role of the trustees and the role of the Master of the High Court in ensuring that trusts are administered properly. The study further examines the sections of the Act that specifically deal with administration of trusts and to identify its deficiencies in order to provide appropriate practical recommendations that will assist in effectively regulating trust administration in South Africa.
1.4 Method and structure
The adopted research methodology entails a qualitative approach by means of a literature review of relevant textbooks, law journals, legislation and common law, case law and internet sources relating to trust administration. Considering that it is impossible to deal with all aspects of trusts, the study is limited to the discussion of the trustees, the Master of the High Court and the Act (only relevant sections pertaining to administration of trusts).
The research is organised into five chapters. The next chapter briefly discusses the development of trusts, initially in England, and then their reception into South Africa. This is followed by a brief discussion of the concept of trusts, the legal nature and the meaning of trusts. In Chapter 3 the duties and responsibilities of the trustees and the Master of the High Court are examined. This is followed by the analysis of the Act to assess its effectiveness in regulating trust administration.
Chapter 4 discusses some of the important recent case law and in particular the Land and Agricultural Bank of South Africa v Parker,33 which is one of the most influential
case laws to date. For the first time the Supreme Court of Appeal shifted the focus to the proper administration of the trust, clearly indicating that the trust could not achieve its goals if the trustees did not administer the trust properly. Other various important cases that followed in the wake of this ground-breaking decision are also discussed.
In the light of the analysis conducted in Chapters 3 and 4, the concluding Chapter 5 seeks to offer practical recommendations based on the findings of the case law and other branches of law such as company law to recommend what needs to be done to effectively regulate trust administration in South Africa.
1.5 Conclusion
South African trust law is still in the process of developing, and court decisions continue to play a significant role in the development of trust law. The current legislation is ineffective in regulating the administration of trusts in South Africa and therefore some legal certainty is required to clarify and elaborate certain provisions of the Act regarding the administration of trusts and the role of trustees. These aspects are vague or not dealt with at all in the Act.
It is time that the current situation be given legislative attention, but the Master and the Courts are not powerless to limit or prevent maladministration of trusts. The Master of the High Court does have some supervisory powers over the administration of trusts and the courts provide various remedies for those who have suffered financially as a result of poor administration or abuse of trusts.34
2 The historical development of the trust in South African law 2.1 Introduction
Trusts were first introduced to the Cape by the British settlers after the British occupation in 1815 and later to the rest of the country.35 These settlers brought with
them the words trust and trustee and the concept of a trust as it was then conceived in England.36 Although the trust was accepted in South Africa, English trust law was
not similarly received and instead South African courts, with the help of legislature, developed a unique South African trust law.37 In a number of cases it was stated
with reference to legal and equitable ownership that English trust formed no part of South African law.
The South African trust law is therefore a mixture of English and Roman-Dutch Law and distinctively South African rules developed from court judgements and legislation38. Although there are differences between the English and the South
African trusts, the basic idea is the same, since the concept of trust has its roots in England.39 In order to fully understand the concept of trust as we know it today, it is
imperative to look at the historical development of the trust, initially in England and subsequently in South Africa. The next section provides a brief account of the development of the English trust, followed by the reception and development of trust laws in South Africa.40
2.2 The development of trusts in England
The use of trusts commenced as far back as the Middle-Ages during the times of the Crusades when land ownership was based on the feudal system.41 The main purpose
of the trust’s creation was to protect and preserve the crusader’s (landowner’s)
35 Cameron et al South African Law of Trusts 21. 36 Cameron et al South African Law of Trusts 26.
37 Du Toit South African Trust Law 11; Olivier et al Trust Law and Practice 1(18). 38 Olivier et al Trust Law and Practice 1(18).
39 Cameron et al South African Law of Trusts 24. 40 Cameron et al South African Law of Trusts 24. 41 Cameron et al South African Law of Trusts 24.
property during his probable lengthy absences on military duty.42 Before leaving
England to fight in the Crusades, the landowner (foeffor), would transfer the legal ownership of his land to a third party (the feoffee) on the understanding that ownership would be transferred back to the crusader upon his return and, if the crusader failed to return, then the feoffee would transfer the property to a nominated third party known as cestul que use (who was usually a member of the crusader’s family). The crusader empowered the feoffee to manage the property and to pay and receive feudal dues. These trusts were known as uses.43
However, the English common law failed to accommodate the interest of the cestul que use in the property held to the use. The feoffee was considered the legal owner of such property and the cestul que use had no remedy against a feoffee who failed to hold the property for the benefit of the cestul que use.44 It then became common
practice for the aggrieved parties to petition the Chancellor for relief based on principles of equity. This brought about a body of law known as equity, which operated alongside the English Common Law. From then on, it was recognised in equity that the feoffee held the property for the benefit of the cestul que use and the feoffee was obliged to manage the property to use in good faith and was expected to abide by the rules and regulations of the use. By then the interests of the cestul que use were recognised as a proprietary interest in the property held to use, which eventually developed into a distinct form of ownership known as Equitable Ownership. The feoffee became the trustee and the cestui que use became known as the beneficiary,45 and the use became known as the trust.46
42 Cameron et al South African Law of Trusts 25. 43 Du Toit South African Trust Law 12.
44 Du Toit South African Trust Law 13.
45 Du Toit South African Trust Law 11; Olivier et al Trust Law and Practice 1(15).
46 Du Toit South African Trust Law 11; Olivier et al Trust Law and Practice 1(15). The use, an
ancient English institution, existed prior to 1066 and was apparently a manifestation of the Continental Treuhand in England. If A conveys something to B for the use of C, it is in fact nothing more than repetition of the Saalman Institution of the Continent. B is the owner of that which is held by him, but not for his own benefit. The basic idea of the Treuhand can be identified and recognised in the use. A was referred to as the feoffor, B was known as the feoffee and the beneficiary C was the cestul que use.
Since then, the trust has been developed and refined to become a much more developed institution than the use had ever been, to such an extent that the trust eventually came to be regarded as one of the most distinctive and outstanding features of English jurisprudence.47 As England continued to colonise many countries
throughout the world, it brought its English legal principles, and the trust concept was no exception.48
2.3 The development of trust law in South Africa
After its introduction into South Africa, the trust soon became a prominent feature of the legal and commercial practice in the Cape.49 The trust concept developed mainly
as a result of court judgements and through legislation.50 While it is true that
England is the historical source of the South African trust, not all the rules of South African trusts came from the English law and as a result it has been submitted that South African trust law is a mixture of English, Roman-Dutch and South African rules.51 The process of reconciliation between the English law and the Roman-Dutch
law is still far from over.52
However, the most important thing to take cognisance of from the historical development is that, although South African trust is based on English law, there are strong aspects of Roman-Dutch law, making it uniquely South African.53
47 Cameron et al South African Law of Trusts 24. 48 Cameron et al South African Law of Trusts 24. 49 Cameron et al South African Law of Trusts 21. 50 Olivier et al Trust Law and Practice 1(15). 51 Cameron et al South African Law of Trusts 23. 52 Pace and Van der Westhuizen Wills and Trusts 9.
53 Botha et al Estate Planning 241. Civil Law principles have, from a practical perspective, important
implications when it is least expected, as is the case with the variation of trust deeds where in the RSA the Roman-Dutch law principles of the stipilatio alteri (contract for the benefit of a third party) dictates specific rules to comply with in order to validate the amendment (see also Pace and Van der Westhuizen Wills and Trusts 23 and 64(7); with further reference to Potgieter v Potgieter 2012 1 SA 637 (SCA). The common law: the beneficiaries must agree to changes if they had accepted the benefits given to them in terms of the deed.
2.3.1 Development of the trust by South African courts
The first case in which a trust was the subject of litigation was reported in 1833,54
and thereafter, more and more cases were decided in which reference was made to trusts.55 It was, however, not until 1915 in Estate Kemp v McDonald’s Trustee,56 that
a South African court was called upon to decide whether South African law could give effect to trusts.57 In this particular case, the court had to deal with a trust created in
a will executed in England. The court concluded that the English law did not form part of the South African law.58 However, the court decided that it would not be
possible to eradicate the trust institution, which by then had become firmly entrenched in the South African legal environment.59
Case law reveals many instances in which the courts have participated actively in the evolutionary development of trust law in South Africa. The following are a few examples of some of the most important cases that have helped develop South African trust law. In Crookes v Watson,60 the legal principles for the inter vivos trust
had become firmly entrenched in South Africa.61 This judgement, as far as the
acceptance of the trust inter vivos is concerned, did for South African trust law what the Estate Kemp v MacDonald’s trustee case achieved for the testamentary trust.62
The Appellate Division held that the inter vivos trust came about as a result of a contract between the founder and the trustee for the benefit of the beneficiary.63
54 Cameron et al South African Law of Trusts 21 (see Twentyman v Hewitt 1833 (1) Menz 156) 55 Botha et al Estate Planning 241; Olivier et al Trust Law and Practice 1(20).
56 Estate Kemp v McDonald’s Trustee 1915 AD 491. 57 Estate Kemp v McDonald’s Trustee 1915 AD 491. 58 Estate Kemp v McDonald’s Trustee 1915 AD 491.
59 Estate Kemp v McDonald’s Trustee 1915 AD 491; Du Toit South African Trust Law 14. 60 Crookes v Watson 1956 1 SA 277 (A).
61 Olivier et al Trust Law and Practice 1(21). 62 Olivier et al Trust Law and Practice 1(22). 63 Olivier et al Trust Law and Practice 1(21).
In Braun v Blann and Botha,64 the unanimous judgement of the Appellate Division in
this matter delivered by Joubert JA, constituted an important milestone in the development of South African trust law. The same judgement emphasised the distinctiveness of the trust as something unique.65 Case law reveals numerous
instances in which evolutionary development of trust has occurred, while in the same breath the courts urged the legislature to attend to certain troublesome aspects of trusts.66 The decision in Braun v Blann and Botha, is important because it confirmed
doubts over the validity of a testamentary trust as a fideicommissum and ensured that a testamentary trust forms part of South African trust law.67
Simplex (Pty) Ltd v Van der Merwe68 confirms the importance of complying with the
provisions of the Act and emphasises that a trustee cannot act on behalf of the trust until he has been properly authorised by the Master of the High Court to do so. In Thorpe v Trittenwein,69 the court held that the separation between ownership and
enjoyment is the very core of the concept of a trust.
64 Braun v Blann and Botha 1984 2 SA 850 (A). As a consequence of the judgement in the matter it
can be stated that a trust in the narrow sense is a uniquely legal institution which is sui generis and distinct from anything in South African law. The English legal terminology that refers to legal and equitable ownership is foreign to South African law. The trust idea has been accepted in South African law and the courts have developed and are still developing principles to accommodate the trust in the South African legal system. The trustee is regarded as the owner of the trust property, but not for his personal benefit and on termination of the trust, the trustee in his capacity as such, acquires no personal benefits from the trust property. On the death of the trustee, his heirs or legatees will not succeed to the property. All benefits from the trust property will always accrue to the income and/or capital beneficiaries of the trust.
65 Olivier Trust Law and Practice 1(22) (see the remarks of Joubert JA, at 859 of Braun v Blann and
Botha 1984 2 SA 850 (A)). As a consequence of the judgement in this matter, it can be stated that: It is historically and judicially wrong to equate a trust with a fideicommissum with fiduciary. A trust in the narrow sense is a unique legal institution which is sui generis and distinct from anything in South African law. The English legal terminology which refers to a legal and equitable ownership is foreign to South African law. The trust idea has been accepted in South African law and the courts have developed, and are still developing, principles to accommodate the trust in the South African Legal System (own emphasis).
66 Du Toit South African Trust Law 21. 67 Geach and Yeats Trusts 12.
68 Simplex (Pty) Ltd v Van der Merwe 1999 4 SA 71 (W). 69 Thorpe v Trittenwein 2007 2 SA 172 (SCA).
In Hoffer v Kevitt,70 the court dealt with the issue of amending trust deeds and
clarified when it is possible to amend a trust deed. In Badenhorst v Badenhorst,71 the
court had to deal with the issue of trusts and divorce and concluded that in certain circumstances the trust could be seen as the alter-ego of the founder and the trust assets could be regarded as those of the founder. There are many other important recent court decisions that have had a tremendous impact on the development of the law of trusts, such as Land and Agricultural Bank of South Africa v Parker.72 It is
clear that the case law has played a significant role in the development of the law of trust in South Africa, especially with regard to the nature of trusts, the duties and responsibilities of trustees in administering trust property and the role of the Master of the High Court, and the High Court in regulating trustees when administering trust property.
2.3.2 Development by legislature
The South African legislature has made a limited contribution to the development of trust laws.73 The first legislation affecting trusts was the Trust Moneys Protection
Act,74 in particular its directives regarding the furnishing of security by trustees.75
The South African Law Commission published its working paper on trust law in 1983 and, after comments from various interested parties, published a report containing suggestions for the proposed legislation that was published in June 1987. The report took cognisance of the comments from the existing court decisions and the viewpoints of legal writers, as well as those of legal practitioners.76 All of these
eventually crystallised into the Act.
The Act was undoubtedly the most important legislation regulating trusts in South Africa. Its aim was to protect the beneficiaries who would eventually benefit from the
70 Hoffer v Kevitt 1998 1 SA 382 (SCA).
71 Badenhorst v Badenhorst 2006 2 SA 255 (SCA).
72 Land and Agricultural Bank of South Africa v Parker 2005 2 SA 77 (SCA). 73 Du Toit South African Trust Law 21.
74 Trust Moneys Protection Act 34 of 1934. 75 Du Toit South African Trust Law 21. 76 Olivier et al Trust Law and Practice 1(23).
trust.77 The Act was never intended to be a codification of South African law of
trusts, but designed to regulate the administration of trust by establishing firmer control and supervision over trustees.78 Many important aspects of trusts such as the
legal personality of trusts, the allocation of trust income and capital, the amendment of trusts, qualifications and disqualification of trustees, standard clauses in trust deeds, punitive provisions, taxation of trusts, procedure for amending trust deeds, the termination and the de-registration of trusts were not included in the Act. As a result the majority of problems associated with the administration of trusts still have to be addressed outside the ambit of the Act,79 usually applying common law
principles. Consequently, since 1990 many cases have been referred to the courts for settling disputes in trust administration. The courts have been called upon to deal with the following aspects of trusts: amendment of both testamentary trust and inter vivos trusts, the duty of the trustees in respect of the interests of the potential trust beneficiaries under inter vivos trust, the type of trust that is regulated by the Act, the degree of certainty with which to identify trust assets, the rights and remedies of third parties who enter into contracts with a trust and whether an independent trustee should be appointed in cases of family trusts.80 Clearly, most of these issues
are of an administrative nature. The courts have indeed done an excellent job thus far, but to ensure legal certainty, the current legislation should be urgently amended to incorporate all aspects of trust law (common law, the Act and case law) into one single comprehensive legislation that is detailed enough to provide sufficient guidelines to the trustees who are responsible for the administration of the trust (like the Companies Act).
2.4 The nature and meaning of a trust
Although the focus of this study relates to administration of trusts, it is essential to look briefly at the concept of the trust. According to Section 1 of the Act:
77 Olivier et al Trust Law and Practice 1(23).
78 Olivier et al Trust Law and Practice 1(23); Du Toit South African Trust Law 21. 79 Olivier et al Trust Law and Practice 1(23); Du Toit South African Trust Law 21. 80 Olivier et al Trust Law and Practice 1(23).
Trust means the arrangement through which the ownership of property by one person, by virtue of a trust instrument, is made over or bequeathed:
(a) to another person, the trust in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument, or for the achievement of the object stated in the trust instrument, or
(b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument, or for the achievement of the objective stated in the trust instrument,
but does not include the case where the property of another is to be administered by any person as executor, tutor or curator, in terms of the provisions of the Administration of Estates Act.
From this statuary definition of a trust, two categories of trusts can be clearly identified, namely: (1) the ownership trust, and (2) the bewind trust.81 In the first
instance, the trustee is vested with ownership of the trust property, but he must exercise the power of control and disposal inherent in such ownership for the benefit of the trust beneficiaries or in pursuance of an impersonal objective.82 The second
type, the bewind trust, occurs when ownership of the trust property is vested in the trust beneficiaries while the powers of control and disposal of the property are vested in the trustees. Again, the powers of control and disposal must be exercised for the benefit of the trust beneficiaries or in pursuance of an impersonal object.83
Many of the trusts in South Africa are ownership trusts, while bewind trusts are very few.84 From that statutory definition of trusts, it is clear that trusts include trusts in
the wide sense (bewind trusts) and trusts in the strict sense. It refers to a trust instrument and as such it includes both testamentary and inter vivos trusts, but it excludes oral trusts.
81 Du Toit South African Trust Law 4.
82 Du Toit South African Trust Law 4; Estate Kemp v McDonald’s Trustee 1915 AD 491; Braun v
Blann and Botha 1984 2 SA 850 (A).
83 Du Toit South African Trust Law 4. 84 Du Toit South African Trust Law 4.
2.4.1 The concept of a trust
A trust is a legal vehicle used to hold certain assets that have been set aside for the use by, or for the benefit of, one or more beneficiaries at some future date. The trust assets are not owned by the trust, but are usually held by the trustees in the name of the trust, or by the beneficiaries. Trust assets, the rules relating to their use and other conditions governing the trusts, are defined in the trust deed. The trust property must then be administrated or used by the trustees for the benefit of the beneficiaries stipulated in the trust deed. This means that the very core of the trust concept is that the powers and functions of the founder are separated from the trustees and beneficiaries. By placing assets into the trust, the founder turns over part of his rights to the trustees, separating the property’s legal ownership and control and enjoyment for various reasons. For there to be a trust, it is crucial that there must be a separation of ownership (or control) from enjoyment of the property.85
2.4.2 The legal nature of trusts
It is important to understand the legal nature of trusts in order to understand the workings of a trust. The true legal nature of the trust has for many years been a point of intense legal debate. In terms of common law, neither the inter vivos nor the testamentary trust possesses legal personality.86
However, several legislations regard a trust as a legal person and the most notable of these is the Income Tax Act,87 which now recognises a trust as a separate and
independent taxable entity for income tax purposes.88 Other statutes that recognise
the trust as a legal person are the Insolvency Act,89 the National Credit Act,90 the
Firearms Control Act,91 the Deeds Registries Act,92 and the Companies Act.93.
85 Fourie Stott 2012 www.fouriestott.co.za; Botha et al Financial Planning 812.
86 Botha et al Estate Planning 245; Braun v Blann and Botha 1984 2 SA 850 (A); Land and
Agricultural Bank of South Africa V Parker 2005 2 SA 77 (SCA); and reconfirmed by Nugent JA in Lupacchini v Minister of Safety and Security 2010 6 SA 457.
87 Income Tax Act 58 of 1962 (as amended).
88 Du Toit South African Trust Law 22; Botha et al Estate Planning 256. 89 Insolvency Act 24 of 1936.
2.4.3 Different types of trusts
The mortis causa or testamentary trusts are created at the winding-up of a deceased’s estate as a result of a specific instruction by the deceased person’s will that a trust must be created. An inter vivos trust is created by an agreement entered into during the lifetime of the founder and the trustees, whereby an obligation is placed on the founder to transfer certain assets to trustee/beneficiaries of the trust to be administered by the trustee for the benefit of the trust beneficiaries.94
2.4.4 Parties to a trust
Several parties are involved when a trust is created in South Africa. From the definition of a trust, it is clear that the three main parties to any type of trust are: (a) the founder, (b) the trustee, and (c) the beneficiaries.95 Each of these is briefly
discussed below: 2.4.4.1 The founder
The founder (also known as the donor or settler) is the person who eithers donates or sells his property to the trustees with the clear intention of creating a trust. In a testamentary trust, it is the testator who creates the trust unilaterally in his will.96
Once a trust is created, the founder has no further jurisdiction over it unless he is also a trustee.97 The founder of an inter vivos trust can be a natural person or a legal
person, and there need not be only one founder. The founder appoints the trustee and specifies who the beneficiaries are.98
90 National Credit Act 34 of 2005. 91 Fire Arms Control Act 60 of 2000.
92 Deeds Registries Act 47 of 1937 (as amended). 93 Companies Act 71 of 2008.
94 Du Toit South African Trust Law 4; Olivier et al Trust Law and Practice 2(5). 95 Botha et al Financial Planning 812; Abrie et al Estate and Financial Planning 96-97. 96 Botha et al Estate Planning 248; Abrie et al Estate and Financial Planning 96. 97 Du Toit South African Trust Law 6.
98 Botha et al Estate Planning 248; Botha et al Financial Planning 812; Du Toit South African Trust
2.4.4.2 The trustees
The Act defines a trustee in Section 1.99 In essence, the trustee is the party who
holds, controls and administers the trust property received from the founder or anyone else for the benefit of the trust beneficiaries.100 The trustee is obliged to
maintain functional separation of ownership/control from enjoyment when administering trust property.101 The person is appointed as trustee in terms of a trust
deed.102 An appointed trustee must accept such an appointment and be authorised in
terms of Section 6 of the Act by the Master to act as a trustee. 2.4.4.3 The beneficiaries
The beneficiaries are the individual and/or organisations and institutions who benefit from the trust, either by receiving income and/or capital from the trust. A trust is formed with the main object of benefiting beneficiaries in terms of the trust deed.103
The beneficiaries derive their rights (whether discretionary or vested) from the provisions of the trust deed.104 Beneficiaries are crucial for the validity of the trust,
for without them no trust is created.105
2.5 Conclusion
This chapter gave a brief account of the history of trusts in South Africa, the concept and legal nature of trusts and the parties involved in the trusts. As already mentioned, the trust administration in South Africa revolves around the trustees. It is also clear that the courts have done an excellent job thus far, but in order to ensure legal certainty the current legislation should be amended to incorporate all
99 Any person, including the founder of a trust, who acts as trustee by virtue of an authorisation
under Section 6 of the Act and includes any person whose appointment as trustee is already in force and effect at the commencement of this Act.
100 Botha et al Estate Planning 250; Du Toit South African Trust Law 36; Botha et al Financial
Planning 817; Abrie et al Estate and Financial Planning 97.
101 Land and Agricultural Bank of South Africa v Parker 2005 2 SA 77 (SCA). 102 Geach and Yeats Trusts 59.
103 Botha et al Estate Planning 261; Abrie et al Estate and Financial Planning 119. 104 Botha et al Financial Planning 812; Abrie et al Estate and Financial Planning 117. 105 Botha et al Financial Planning 812; Du Toit South African Trust Law 7.
aspects of trust law, especially the recommendations from decided cases into one single comprehensive legislation.
Chapter 3 discusses the regulation of trust administration, which is the main focus of the study. As trustees are the people responsible for this onerous task, it is important to elaborate on the duties, obligations and responsibilities of the trustees before discussing the regulation of trust administration, in particular with reference to the trustees.
3 The role of the current legislation in regulating the administration of trusts
3.1. Introduction
A trustee occupies a fiduciary office and, by virtue of this alone, a trustee owes the utmost good faith towards all beneficiaries, as beneficiaries have vested interests in the proper administration of trusts. Olivier mentions:106
The practical implementation of a trustee’s duties within the ambit of the fiduciary relationship can be said to provide the electric current which ensures proper and enduring light for the trust.
Honoré identifies three main principles that govern the administration of trusts namely:
(a) The trustee must give effect to the trust instrument so far as it is lawful and effective under the law of the place where the administration will take place. (b) The trustee must, in the performance of his duties and the exercise of powers
as trustee, act with the care, diligence and skill that can reasonably be expected of a person who manages the affairs of another.
(c) Save for questions of law, the trustee is bound to exercise an impartial and independent discretion in all trust matters.107
Currently, the duties of a trustee are determined and regulated by the trust deed, common law and the Act. The Act imposes onerous duties on a trustee and in addition to these certain duties arise in terms of the common law because of the fiduciary nature of the trustee’s position. It is important that trustees be aware of what fiduciary duties are in order to ensure that the trust is administered properly. It is vital to ensure that the trust affairs are in order, as this can have far-reaching effects.108 An in-depth knowledge of the laws governing trusts in South Africa is
critical, especially with regard to the duties, responsibilities and obligations of
106 Olivier et al Trust Law and Practice 2(2).
107 Pace and Van der Westhuizen Wills and Trusts 49. 108 Marais 2012 Moneyweb’s Tax Breaks 4.
trustees. The actions of trustees are of paramount importance, as poor trust administration or not complying with the law of trusts may hamper the objectives of the founder and may have unintended consequences.109 When dealing with trusts, it
is therefore important firstly to understand the nature of the fiduciary and office of trusteeship and secondly the duties, responsibilities and obligations imposed on the trustees in terms of the trust deed, common law and the legislation.110
Although the Act was promulgated to deal with the administrative matters of trusts, it is deficient in regulating trust administration and as a result, there are several pitfalls when administering trust property, such as acting on behalf of the trust without the necessary authorisation from the Master, amendments of trust deeds not being properly and legally done by all the parties in accordance with the provisions of the trust deed, and failure to separate trust property from personal property. The practical effect of some of these deficiencies in the Act and the possible abuse of the trust form are highlighted in the various cases discussed in both Chapters 3 and 4.111
Recently trustees have also portrayed unacceptable conduct such as failure to participate in important trust decisions, acting contrary to the founder’s wishes, failure to distribute trust income, being untruthful, acting with self-interest and not for the benefit of beneficiaries, and ignoring beneficiaries in respect of trust administration.112
Although the Act attempts to regulate the trustees’ conduct by providing what they should do with regard to trust administration, it remains critical that the founder should pay particular attention in choosing the trustees by making sure that the chosen trustees will fully appreciate and understand the demands of trusteeship and will execute their office accordingly.113 The founder must therefore choose trustees
who have knowledge of trust law and the dedication to administer the trust properly
109 Marais 2012 Moneyweb’s Tax Breaks 4. 110 Immelman 2011 Without Prejudice 42. 111 Immelman 2011 Without Prejudice 42. 112 Du Toit 2007 QLR 91-92.
and who will adhere to the provisions of the trust deed and all statutory prescripts.114
He should be confident that the trustees will conduct trust administration in good faith, with independence,115 and with full accountability.116 This chapter firstly
discusses the trustees’ powers, duties and the responsibilities of the trustees in administering trust property before discussing the regulation and control of trustees when administering trust property, in particular the role of the Master of the High Court and the High Court. The chapter concludes with a discussion on the deficiencies of the current legislation.
3.2 The fiduciary nature and office of trusteeship
The person who has been validly appointed and authorised by the Master of the High Court to act as a trustee assumes the office of the trustee. Trusteeship is therefore an official position and a trustee acts in two capacities at all times. Firstly, he holds an office in his official capacity as trustee and within the ambit of his trusteeship all his actions are related to that office.117 On the other hand, he is a private individual
with all his rights, obligations and property which are separate from the trust he administers.118 The office of the trustee is established by the relevant trust deed and
filled in terms of that trust deed or by the Master of the High Court. If a trust has more than one trustee, they all hold one office irrelevant of their number.119 An
office bearer who is placed in charge of another individual became duty-bound to protect that individual by virtue of his office by acquiring some sort of government-backing and specifically mandated responsibilities that are stated and regulated by the Trust Property Control Act 57 of 1988.
114 Du Toit 2007 QLR 91-92.
115 Tijmastra v Blunt-Mackenzie 2002 1 SA 459 (T) 474.
116 Doyle v Board of Executors 1999 2 SA 805 (C) 815; Tijmastra v Blunt-Mackenzie 2002 1 SA 459
(T) 471 and 474.
117 Du Toit South African Trust Law 80; Girdwood 2011 Without Prejudice 14-16. 118 Du Toit South African Trust Law 80.
119 Tijmastra v Blunt-Mackenzie 2002 1 SA 459 (T) 464.Grant 2015
https://criminallawza.net/lecture-5-conduct an office bearer who is placed in charge of another individual becomes duty-bound to protect that individual by virtue of his office by acquiring some sort of government backing and specifically mandated responsibilities that are stated and regulated by the government.
The office of the trustee has been described as a quasi-public office that renders a trustee as office holder subject to judicial scrutiny and to the supervision of the Master of the High Court.120 However, despite having assumed office, a trustee is
forbidden from acting on behalf of the trust before the Master has issued a letter of authority.121
The fact that the trustee occupies a fiduciary capacity means that he/she has a fiduciary duty towards the beneficiaries and as such has a number of specific duties to perform in the administration of the trust property122 and is obliged to report trust
matters to fellow trustees, beneficiaries, guardians of minor children, SARS and the Master of the High Court.123
3.3 Trustees’ powers and duties in terms of the trust deed
The trustees derive their powers (the things they can or may do) from the trust deed. These powers enable the trustees to administer the trust. There is no law in South Africa prescribing the types of powers a trustee should have and therefore it is common practice to give the trustees very wide discretionary powers so that they are not restricted in unforeseen circumstances and when new needs arise. Thus, if a trust deed makes no provision for particular power, it will be inferred that the trustee should not have those specific powers. If trustees act beyond their powers, any purported transaction entered into by that trustee will be null and void in law.124
120 Du Toit South African Trust Law 81.
121 Section 6(2)(b) of the Act; Du Toit 2007 STELL LR 471.
122 Du Toit South African Trust Law 81 also see Du Toit 2007 STELL LR 469-482. 123 Jamneck et al The Law of Succession 187.
A trustee, therefore, can do anything legal when empowered by the trust deed, but has no powers, neither explicitly or implicitly, given to him by the trust deed or the law.125 As a result, the trust deed is regarded as a trust’s Constitutive Charter, as the
rights, duties and powers of the parties involved in a trust are largely contained in this important document.126
The trustees should be very clear on their duties in respect of a trust.127 It is
therefore critical that trustees acquaint themselves with the provisions of the trust deed immediately upon acceptance of office of trusteeship. Failure to perform these obligations or abuse of these powers may result in a law suit, as beneficiaries of the trust can challenge the decisions made and actions taken by the trustees in a court of law.128 The trust deed must therefore be used constantly as a checkpoint for the
trustee’s powers and duties.129 Trustees may delegate their duties and obligations to
agents/professionals, provided they do not free themselves from liability for the conduct so delegated and can at any time revoke the appointment.130
125 Jamneck et al The Law of Succession 189. See also Liebenberg v MGK 2002 4 All SA 322 (SCA)
(Powers of Trustees). A trust was sequestrated as a result of a trustee entering into a deed of suretyship binding the trust as a surety and co-principal debtor for all the amounts owing by one of the beneficiaries. The Supreme Court of Appeal held that although wide powers were given to the trustees (the trustees were given the power to manage the affairs of the trust), these were subject to the express provisions of the trust deed as well as to the purpose of the trust. The purpose in this case was to secure the value of trust assets from being diminished and to ensure equal distribution of the trust assets between all the beneficiaries at the termination of the trust. The Court held that unless there is a specific provision made in a trust deed, a trustee has no power to expose trust assets to business risk. See also Potgieter v Shell 2003 1 SA 163 (SCA).
126 Geach and Yeats Trusts 52.
127 Fourie Stott 2012 http://www.fouriestott.co.za. 128 Geach and Yeats Trusts 52.
129 Geach and Yeats Trusts 89.
130 Geach and Yeats Trusts 189. See also Hoosen v Deedat 1999 4 SA 425 (SCA) in which case a
trustee may delegate powers to another but cannot abdicate powers. The court held that a trustee who is chosen by virtue of some special quality or ability may not delegate the trustee’s powers, authority or duties to anyone else. In all other cases delegation is valid but the trustee does not free himself from liability for the conduct of the person appointed to act for the trustee. The trustee may from time-to-time freely revoke his powers, which means that a trustee may not purport to appoint someone else and in so doing, procure the trustee’s own release from the responsibilities of a trustee. In this case the court concluded that the power of attorney did not amount to an invalid delegation of powers.
Although it is quite common to give the trustee wide discretionary powers, it does not mean that trustees have unlimited and unfettered discretion. They are not allowed to do as they please, since their discretion is limited by both common law and legislation in the Act. When in doubt, the provisions of the trust deed must be read in conjunction with both the common law and the statutory duties.
3.4 Trustees’ duties, responsibilities and obligations in terms of the common law
The common law duties of trustees stem mainly from the nature of the office of trusteeship that requires the trustee to act in good faith, similar to what Roman law defined as bonus et diligens pater familias. In practice, this means that the trustee must always act with the best interests of the trust beneficiaries in mind.131 Apart
from the duties provided for in the trust deed, the trustees are also expected to perform various other duties in terms of common law. The trustees must act in an independent and objective manner in respect of all trust matters and must not be influenced by anyone, especially the founder of the trust. Immediately upon being authorised by the Master of the High Court, the trustees must take possession of the trust property, keep it under their control and administer it throughout the entire duration of the trust’s existence. The trust property must be kept separately, with proper control systems in place.132 Most importantly, the trustees should comply with
all relevant legislation, especially the provisions of the Act, the Financial Intelligence Centre Act,133 and the Income Tax Act.134. It is the responsibility of the trustees to
ensure that the prescribed number of trustees in the trust deed is adhered to at all times and that the correct procedure is followed when filling trustee vacancies, when available, including the time frames as prescribed by the trust deed. Failure to maintain the specified trustee minimum number will invalidate acts by the remaining trustees.135 In terms of the common law, the trustee must preserve the trust
131 Botha et al Estate Planning 275; Abrie et al Estate and Financial Planning 104; Van der Merwe
2008 Without Prejudice 36-38.
132 Van der Heever 2005 http://www.vanderheever.co.za. 133 Financial Intelligence Act 38 of 2001.
134 Income Tax Act 58 of 1962 (as amended). 135 Geach and Yeats Trusts 96.
